My frustration with the lack of fiscal policy in the USA has hit new highs this week as there has been some murmuring from the Federal Reserve about negative interest rates.
I’ve repeatedly written that monetary policy, which is control of the money supply by the Federal Reserve Bank, has been pushed to the limit in what it can accomplish for our economy. Our economy continues to underperform because of decisions related to fiscal policy, which is how Congress raises money, spends money, and legislates.
The Fed has taken some unusual means to try and spur the economy; most notably “quantitative easing.” Negative interest rates would be another untested experiment that they feel pressured to look at because economic growth is lagging. The Fed is resorting to these means (and they shouldn’t have to), because our Congress and President are failing to create an environment under which an economy can grow more robust.
Fiscal policy is vital to the prosperity of the American economy. If the government makes committed plans to develop infrastructure, foster new industries and create incentives to business owners, then the economy is well fertilized for long-term growth. Unfortunately, the fighting and partisanship has ground to a halt our fiscal policy, and businesses have been left with uncertainty in both the short-term and the long-term. As a result, businesses have tread lightly with future ambitions and growth opportunities.
As you can see, this has nothing to do with the Fed (monetary policy), and everything to do with Congress and the Prez (fiscal policy). With fiscal policy going nowhere, the Fed keeps feeling compelled to do something, even if it is untested or results are unpredictable.
Partisanship persists because so many political leaders are entrenched. Incumbents have some of the best job security of any Americans. Because of this, I don’t foresee a change in the lack of fiscal policy soon, since the same actors will remain in place. So, why not create a controversial way to assure the politicians churn out of Congress, so they aren’t incentivized to play up partisan bravado to continue to get elected? I would call this idea “term limits.”
With term limits in place, eventually new politicians will need to come to serve Congress. Old alliances will dissolve, new alliances will be formed, and there will be a continued need for people to find ways to work together to accomplish their goals. It will be much harder to foster gridlock with old faces constantly leaving and new leaders arriving. Without the gridlock, there is a greater chance real fiscal policy might be adopted, and the economy can start to forge ahead. Therefore, term limits may hypothetically be a plan for future economic development.
I cringe when I think what new thing the Fed will attempt to do next in an ill-fated attempt to spur the economy. It’s unfortunate they feel pressured, because it isn’t their fault. The politicians in Congress, who don’t have to leave, bear the responsibility for the stagnant economy. And what is more interesting, there is no discussion about Congressional term limits by either major political party this campaign season.